Losing a job, going through a divorce, being laid up for a medical condition – whatever the cause of your situation – suffering a loss of income and falling behind on your debt is just a crappy experience. The good news is things generally do get better. And when they do, it’s important to understand how best to navigate the debris so you may ultimately recover from it.

There is so much misinformation on the Internet regarding how to recover from debt it’s scary. This is one of those situations that you need to get right.

To start off you need to know a few things:

You do not reset your 7-year credit report reporting period by settling, paying off, or making payments on a collection or charge-off. Please see this opinion letter that is provided by the FTC. Specifically, question 2.

You will more than likely extend the statute of limitations (the length of time your creditor can successfully litigate) when making payments on collections and charge-offs. It is a lot of times, in your best interest, to either pay off or settle a collection or charge-off, rather then entering into a long-term repayment plan. When making payments to a debt collector, you will more than likely renew the period of time the debt collector has to sue you. It’s not a huge deal at first, since you’ll be paying them. But what if things change again for the worst and you find yourself not able to continue? It’s very important to make this consideration if you’re debating making payments to your collections and charge-offs.

When making payments to a collection or charge-off, the account won’t be considered “satisfied” until your final payment is made. Whereas, if you settle or payoff the account, satisfaction is achieved potentially right away.

Most conventional lenders (lenders that offer attractive interest rates), won’t lend to you until ALL of your collections and charge-offs have been satisfied for 12-24 months. Which means: if you have multiple collections and charge-offs, your credit really won’t benefit until you settle or pay off your final account. Please see credit scores when paying or settling collections and charge-offs for more information.

Most people who file for Chapter 7 bankruptcy generally begin to reestablish their credit within 24 months of filing. Please see credit after bankruptcy for a detailed explanation.

The bottom line: the most important element to pay attention to, when you’re trying to figure out how to recover from debt, is TIME.

How old are your collections and charge-offs? They automatically fall off your credit report after 7 years from the date of original delinquency. If they’re more than 5 years old, you would benefit similarly by just letting them fall off on their own versus resolving them.

If they’re less than 5 years old, and you desire to rebuild your credit, the question you want to ask yourself is how long will it take you to resolve ALL of your collections and charge-offs? Once you figure that out, add 2 years to that figure to determine how long it should take you to recover from debt.

To help you figure out how long it will take you to resolve all of your collections and charge-offs, see the charts below…

How to Recover From Debt

Rule # 1: Recovery is dependent on the resolution of all delinquent debts.

Satisfaction of your collections and charge-offs can be achieved in 3 ways.

Paying off an account

Settling an account

Filing bankruptcy

The longer it takes you to achieve one of these outcomes on all of your collections and charge-offs, the longer it takes you to recover and rebuild.

How long does it take to recover from debt?

Consumers generally begin to build new, unsecured credit within 2 years of satisfying their last delinquent account. So the amount of time to recover from your typical debt relief options are:

How to apply this information…

Now that you have familiarized yourself with how long it takes to recover, let’s discuss how you can apply this information to your particular situation.

Are you able to pay off your debts in full?

Paying your debts off in full is your best solution. When you pay your accounts in full, your credit report will generally state that you “paid in full.” When you settle, it will generally state “settlement accepted on this account.”

With either outcome it will reflect a zero balance. Also, if your situation makes settlements necessary, they do not report what you settle for. So whether you reduce your debt by 20% or 60%, it will show up the same way.

Settlements won’t destroy your ability to rebuild your credit. My previous clients have reported that they were able to gain new, unsecured credit within 6 – 18 months of completing my service. And, just to be safe, I tell my potential clients to plan on two years.

It’s also important to note that if your accounts are already charged off, the path that will lead to the satisfaction of your charge-offs the quickest is what is most important to your recovery.

For example, if you can settle your collections and charge-offs right away versus making payments for a couple years, your credit will recover sooner, since your charged off accounts were satisfied sooner.

So even though paying your accounts in full is better, that advantage is nullified by the amount of time it takes to pay them off when your accounts are charged off.

If you feel settling your debts is the most sensible approach to your situation…

Do you have access to an asset or financial resource that would allow you to come up with roughly half of what you owe at one time?

If you do, you may want to learn about my simultaneous debt settlement service. Settling your credit card debt right away, in a simultaneous way, will enable you to recover quickly.

It will also greatly minimize the potential risks and exposures that are tied to long-term debt settlement programs.

And due to my unique approach, you will have the option of knowing what all of your creditors will settle for before you pay anything to anyone, including me.

If you can’t generate enough funds to settle all of your delinquent debts, can you generate enough funds to settle some of them and re-age the remaining ones?

If your accounts are not charged off, you could expedite your recovery by settling as many credit card debts as you could (by settling the accounts that would settle for the least amount – percentagewise) with your available funds, and then by re-aging your remaining accounts. A re-age is a program that credit card companies offer that enables you to bring the account back to a current, R1 status after making 3 minimum monthly payments.

The idea behind this strategy is to keep you out of an adversarial situation with your creditors and to resolve your delinquency quickly. This way you may begin to recover quickly, instead of dragging things out like you would with a long-term debt settlement approach.

If you can lower your monthly expenses enough by settling as many of your accounts as you can and by maintaining your payments on your remaining accounts, you will resolve your delinquency and begin to recover.

If you can’t generate funds to settle your debts quickly, do you think you may be able to settle your debts in 1-2 years?

Please be aware, that you really don’t want to attempt debt settlement if it’s projected to take longer than 24 months. Ideally, you want to do it in 12 months or less. Please see my 4-part series about how debt settlement works to learn why.

If your accounts are already charged off, or if you lack the financial ability to settle enough debts right away but prefer to settle your accounts, I HIGHLY recommend that you use a do-it-yourself approach. Please see my article about DIY debt settlement to learn why.

If you can’t resolve ALL of your delinquent debts in less than 2 years and your collections and charge-offs are less than a few years old, have you considered Chapter 7 bankruptcy?

If your accounts still have a few years shelf life, when it comes to the statute of limitations and credit reporting, you may want to explore your bankruptcy options. Please see nolo.com’s article about how to find a bankruptcy attorney to make an appointment with one. Most offer free consultations.

Your other alternative is to do nothing.

However, doing nothing is generally an approach reserved for people who are and will remain assetless, jobless, and without future need for reestablished credit. Or, for people whose collections and charge-offs are more than a few years old, and ideally, expired from the statute of limitations.

If you expect your situation to improve over time, you’re generally better off filing Chapter 7 bankruptcy as opposed to doing nothing. Not only will Chapter 7 bankruptcy protect you from wage garnishments, liens, years worth of collection calls and letters, and ongoing long-term stress, it will also enable you to reestablish credit again.

If you do nothing, you can pretty much count on not being able to qualify for new, unsecured credit until all of your delinquencies fall off of your credit report (generally 7 years and 6 months from the original date of delinquency). Whereas, if you filed Chapter 7 bankruptcy, you would generally acquire new, unsecured credit within 2 years of doing so.

I was formerly one of the most successful debt collectors in the country. And don’t worry, I wasn’t one of those huffy-puffy types. I also held positions of Collection Manager, Corporate Trainer, and Director of Collection Operations. I’ve worked for large third-party collection agencies, collection attorneys and large debt buyers. (full bio)

I’ve dedicated my website towards truly explaining how debt settlement really works and to dispel the myths revolving around credit and debt.

I was formerly one of the most successful debt collectors in the country. And don't worry, I wasn't one of those huffy-puffy types. I also held positions of Collection Manager, Corporate Trainer, and Director of Collection Operations. I’ve worked for large third-party collection agencies, collection attorneys and large debt buyers. (full bio)

I've dedicated my website towards truly explaining how debt settlement really works and to dispel the myths revolving around credit and debt. ...

Disclosure: I may be financially compensated by any of the entities that I recommend on this website.

All recommendations are provided purely based on who I feel the most comfortable with for the particular scenario.

If you are considering getting help with your debt, please take the time to educate yourself by reading these featured articles:

We’re the only debt settlement company he has EVER allowed on his referral list.

Tom Martino has been fighting for consumers for more than 30 years utilizing Radio, TV, Newspapers, Magazines, and the Internet. Tom can be heard weekday mornings on the radio from 9 to noon on Denver’s popular AM talk station 630-KHOW. Each show is filled with calls from people needing consumer help, information, and advice.

Debt Relief Á la carte is not a credit repair company. We do not provide legal, tax, or investment advice. If you need legal advice, legal expertise, or court filings, you must seek the advice of a licensed attorney. Estimates are based on your collectabilty, our past experience, and settlement performance trends. Individual results may vary. The claims made are examples of past performance and are not intended to be a guarantee of any future settlement results. We do not provide debt settlement services in all states. We use reasonable care to ensure that the information appearing on this website is up to date and accurate. While we take precautions to prevent the occurrence of errors and omissions, the users of this website should not take the accuracy of the information for granted but should seek individual professional advice that is relevant to their particular situation and needs.